Last year, the UK’s Chartered Institute for Personnel and Development issued a report highlighting Generation Y skill gaps. Commercial skills came out as a priority area – in particular, the ability to understand the point of view of clients and stakeholders.
Selecting a business partner, negotiating a relationship, managing a contract – doing any of these successfully depends on understanding other points of view. Indeed, commercial skill is about much more than this. Understanding is one thing; real commercial skill is about achieving reconciliation between those view points. It requires the ability to analyze, to influence and to create a workable solution – or to establish that there is in fact no workable solution, at least with this set of stakeholders.
The reason commercial skills are becoming increasingly important is because of the momentum of change. In the past, fields such as procurement, contract management and (to some extent) legal and finance have been about defining and imposing standards and norms. ‘Compliance’ became such a buzz-word – and yet compliance spells disaster if it constrains innovation and change.
The standards and compliance mentality of the last 20 years bears significant responsibility in the crushing of commercial skills and business judgment. It created ‘professions’ that are highly compliant, but intellectually useless. Professional bodies saw themselves as ‘guardians of the standard’ and therefore offered training and development programs that were outdated before they were even released.
Commercial skills are all about balancing the need for sound business controls with the imperative for continuous update and the management of change. This is an exciting, but challenging, environment – especially for educators. It means they need to provide a basic structure for learning that includes training to regularly question and redesign the way we do things.
That is why, at IACCM, we are driven by continuous research, by outreach to multiple stakeholder groups, to new technologies and ideas that will shape the commercial landscape. We fervently believe that our role is to support our members in equipping for the future – not to prepare them for the past!
Unless you happen to be an expert, most people would probably vote that contracts are a ‘necessary evil’. If it were an option, there is a chance that they would be outvoted by those who selected ‘unnecessary evil’. Only an enlightened few are likely to choose ‘a competitive weapon’.
Personally, I would want to vote for ‘a competitive asset’ – but I recognize that in most cases, this is wishful thinking.
Contracts – and the contracting process – tend to be seen as instruments for bureaucratic control. There is a celebration when they are signed – partly because they represent an important milestone for the business, partly due to the relief that they are now out of the way.
And ‘out of the way’ is far too often the truth. They are shuffled into a filing cabinet – real or virtual – and emerge only when there are real problems, when the relationship is in trouble. They are a safeguard, a method of risk allocation, a stick to beat the other side.
That, at least, is the view of the ‘necessary evil’ party.
What an opportunity such an attitude is missing! The contracting process represents a chance to ensure common goals, to test whether parties can work together, to build quality and commitment into their relationship. In short, it is the means through which we can safeguard delivery of successful results. Better contracts and better contracting processes are indeed a source of competitive advantage.
And if you don’t believe me, or want to learn more about how to transform your contracts, your contracting process and your value to the business, join our two part webinar series, in which Dalip Raheja and I will take you on a thought-leadership journey. Part one – “The Why – Contracting Must Change and What will Happen if We Don’t?” is on February 24th and you can register at https://www2.iaccm.com/events/register/?id=2339
And we will start with a poll to discover how you feel about the contribution of contracts today – and finish with a poll to check that these webinars have provided insight to a new way forward!
IACCM works with many of its members, undertaking process capability assessments. These are designed to assess current weaknesses and develop improvement plans. They include industry benchmarks, enabling an organization to target closure of specific gaps or sources of competitive advantage.
At the outset of each workshop, we discuss the strategic goals for the business that have been set by the Board or by senior management. IACCM provides a summary of these, gleaned from a variety of available sources – for example, the company website or annual reports.
In a majority of cases, the legal or commercial team does not recognize these goals. While some elements may be familiar, the overall strategy does not feature in their functional plan. As a result, the contract and commercial process frequently does not support business strategy and may even pull in the opposite direction.
When discussing how best to reconcile business strategy with functional action, it also becomes apparent that many groups are unclear about management intent. For example, a recent workshop highlighted executive interest in operating with ‘manageable risk’. But the commercial team were unsure what this meant; their interpretation was that the Board was risk averse, but no one had ever tested this view.
For commercial teams to add value, they must be contributing to business strategy. Indeed, those strategies frequently demand continuous evolution of commercial policies and practices, with underlying shifts in contract terms and relationship models. Without such alignment, groups such as contract management, legal and procurement become an impediment to the business – and a source of avoidable cost and risk.
So how confident are you that you are aware of the business strategy and that your work and outputs are supporting management goals and market values?
A new year, but continued pressure to deliver savings.
That statement summarizes where many Procurement groups find themselves as we enter 2016. So to the casual observer, nothing has changed.
Yet they would be wrong, because the expectations of top management in both public and private sector are shifting fast. They want supply chains that deliver sustained improvements in cost, quality and innovation, supporting flexible, market-oriented operational capabilities. And those attributes will not be achieved through traditional, supplier-focused demands for price reductions.
2016 will see continued erosion of old-style Procurement and growth of the skills and methods needed to manage category segments and integrated supply networks. Input-based acquisition will be replaced by effective commissioning and management of outputs and outcomes. “Procurement” will steadily shift from being a functional activity into an organisational competence.
So what is left?
The future – far from looking bleak – is simply different. It demands greater understanding of markets, closer integration of customer / supplier operations and shared commitments to performance. Those characteristics will be delivered through the adoption of contract management and supplier relationship management techniques, underpinned by heightened levels of commercial awareness.
To meet the challenges of 2016 and beyond, procurement must move from its narrow focus on short term savings. Practitioners of the future will exhibit cross-functional knowledge and stakeholder understanding, to ensure that savings are achieved throughout the lifecycle of a supply relationship and that they supplement – rather than undermine – the achievement of business value.
Perhaps the big question in all of this is whether these new attributes can ever emerge while Procurement reports to the CFO. The short-termism of financial thinking, combined with its limited understanding of business relationships and ethics, far too often drives destructive behavior by Procurement. The growing importance of overall supply management demands a shift in thinking and measurements – implying that an escape from the umbrella of Finance is a critical need.
A breath of fresh air is blowing in Buenos Aires with a new government under the leadership of Mauricio Macri … and the winds of change may soon be blowing throughout Latin America.
According to reputable local political analysts and global press releases, under the former government, Argentina lost its political and economic weight in the region, during a decade of uncertainty in rules, intervention in the economy and confrontation with key elements in the international community. Unrealistic exchange rates and export controls, failure to produce reliable official statistics and undermining of both media and the courts were key features of this period – deterring foreign investment and constraining economic performance.
The ending of the commodity boom has forced economic reality onto other regimes, most notably Brazil and Venezuela. The signs of transformation, integrity, transparency, sacrifice and challenge to corruption that are now evident create positive hope for change across the continent. And with this change comes the need for enhanced commercial and contract management skills, the ability to compete and strike business deals on an international basis.
Collaboration instead of ideological struggles. Certainty in the rules. Transparency…These emerging values remind me of the IACCM themes for 2016: “Transformation: agility, collaboration and reputation. In fact, at IACCM we anticipated this scenario in Latin America, so we decided to strengthen our efforts and invest in the region by re-launching our learning programs and appointing this year Pablo Cilotta as our director for South and Central America.
Already Pablo is experiencing the speed with which change is occurring, in both private and public sector. For the private sector, the issue is one of competitiveness; for the public sector, it is a matter of reconciling growing demand with reducing budgets. This issue of affordability is not only affecting markets such as the UK, the USA and Australia (where the IACCM has been contributing to commercial reform), but also in these LatAm nations where their government policies must now focus on driving revenues and reducing costs.
In the past, the public sector tended to gaze inwards when looking for solutions, but what we are seeing is that governments are engaged in fast-moving global competition, which therefore requires new attitudes and skills. This needs to happen in Argentina and in the rest of Latin America too, following these trends in the more developed nations.
The opportunities in Latin America in 2016 will be exciting for many companies – not least IACCM, helping both the private and the public sectors to realise their enormous potential. It is a demanding, yet remarkably exciting, period in our development and of the emerging contract and commercial professionals across Latin America.
Do you collaborate? Is your organization or business collaborative?
In surveys, most contracts, legal and procurement professionals say they prefer to be collaborative – but that their efforts are often frustrated by ‘the other side’. Clearly, since ‘the other side’ is included in the survey, something more fundamental is going wrong.
To what extent might that be because we have not created the environment for collaboration? Here are five fundamental factors that contribute to collaborative teams – whether internal or with major suppliers or customers.
- Do you communicate and reflect company expectations? Collaborative behavior should certainly be amongst them. But this is hard if roles and responsibilities are unclear or if team members do not understand what is expected of them. In the world of contracting, this is a frequent problem because there is often confusion over issues of ownership, leadership and authority. This can lead to confusing signals, avoidance and frustration.
- Are there clear team goals? Measurable goals are important for driving focus and gaining alignment across the team. Again, in the world of contracting, there are often conflicting goals or objectives and there is a tendency not to discuss those conflicts, not to seek reconciliation between them. This will lead to adversarial behavior.
- Is creativity encouraged? Teams that encourage and welcome new or different ideas are far more likely to collaborate than those which stick to rigid agendas and seek to limit innovation. Many negotiations and contract-related discussions become stuck on traditional battle lines around risk and its allocation. Often the participants lack authority and incentive to do anything differently. This offers no room to collaborate or build trust.
- Does the working environment support cohesion? Teams are often virtual; they may be multi-cultural and operating across several time zones. Increasingly they depend on tools and software to ensure that everyone knows what is going on, to share ideas and ensure tasks are being performed. The world of contracts generally lacks such tools – often within an organization, frequently between organizations. This results in a lack of structure and poor information flows – and the consequence is a tendency for tasks to be missed or delayed and for a blame-culture to emerge.
- Have you structured for success? Individuals and organizations have strengths and weaknesses. Recognizing and planning for these is itself the framework for collaboration. It sets up an environment in which everyone is more likely to succeed and where there is a high probability of a successful outcome. Yet many contracts and negotiations pay little attention to who knows what, who has which resources, where skills or capabilities are strongest. This adds to the defensive nature of many teams and undermines the chances of success.
So reflecting on your experiences, might there be things that you could do to create a different environment and to stop blaming the other side?
The speed of change, the volume of change, the nature of change ….. These lie at the heart of risk and opportunity and today we are experiencing a far more volatile and unpredictable environment than in the past. An environment of change typically has two impacts. One, it generates added complexity and a need for simplification; second, it offers opportunities for creativity.
These were the two features that I highlighted in my initial blog on ‘the year in prospect’. I tackled the topic of simplification, so will focus now on creativity.
To achieve contracting excellence, I suggest that the commercial community must consider change – and offer creative ideas – in three contexts:
- within our commercial policies and process
- within our contract templates and agreements
- within our organization and its capabilities
So here are some questions to which I believe we should be seeking answers and which can spur creative ideas:
- Are we advocates for change, using the insights we gain from the contracting process and market experience, or do we wait to be told what to do?
- Can we break the syndrome in which contract change requests turn into a battle over fee versus free? How do we build collaborative change mechanisms into our contracts, for example based on improved economic value analysis or through the use of ‘agile’ frameworks?
- Where do we gain the information and support we need to define and execute on organizational and capability change? How do we make the business case to gain an executive mandate?
- Which of our terms and conditions are generating measurable business value and which are a source of cost or expense?
- How might we gather and analyze performance data from across contract and relationship portfolios, in order to identify opportunities for change? How might we improve our awareness of competitive performance in these same areas?
- Should we be amalgamating methods or resources in areas such as contract management and relationship management; or consolidating buy-side and sell-side contracting and commercial expertise?
There are of course many other possible questions or hypotheses, but I have observed that the groups which are flourishing are those which welcome change and embrace their role in its management through asking tough questions. That is the route to delivering functional value, so if you don’t have questions of your own, start with those above.
IACCM’s latest benchmarking report (available in published form to Corporate Members) provides a wealth of insights to comparative performance and explains how organizational models, measurements and technology impact business performance and the levels of creativity generated by the contracts and commercial staff.